Western Pacific Stockholders' Protective Committee v. Interstate Commerce Commission and United States of America, Union Pacific, Intervenor

Citations: 848 F.2d 1301; 270 U.S. App. D.C. 269; 1988 U.S. App. LEXIS 7863Docket: 87-1145

Court: Court of Appeals for the D.C. Circuit; June 10, 1988; Federal Appellate Court

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In 1982, the Interstate Commerce Commission (ICC) approved a merger between Union Pacific Corporation (UPC) and Western Pacific Railroad Company (WP), which was completed in 1983. The merger involved UPC acquiring 87% of WP's stock through a tender offer, followed by a mandatory conversion of shares for $20 each for remaining shareholders. Some dissenting shareholders challenged the fairness of the second stage of the merger, arguing that the compensation did not reflect the true asset value of WP. Previous petitions for review and reopening by shareholders, including Edward K. Wheeler and Daniel Bruno, were denied by the ICC. In 1986, the Western Pacific Stockholders' Protective Committee, represented by Wheeler, sought to reopen the case, claiming new evidence regarding WP's real estate value. The ICC refused, maintaining that the valuation method used—based on WP's capitalized future earnings—was appropriate, and that liquidation value was irrelevant. The court noted limited authority to review the ICC's refusal to reopen, requiring a clear abuse of discretion to overturn such a decision, a standard rarely met.

A petition to reopen a prior proceeding based on alleged "material error" is deemed unreviewable. The petitioner challenges the ICC's 1982 valuation methodology of WP's asset value, arguing it constitutes a material error; however, this claim is also unreviewable. Alternatively, the petitioner asserts that changed circumstances render the ICC's refusal to reopen an abuse of discretion, claiming the original ICC decision mistakenly assumed dissenting shareholders would have appraisal rights under Delaware law. The Delaware court ruled that it lacked jurisdiction based on the precedent set in Schwabacher v. United States, which interpreted federal law as preempting state law on merger fairness, thus granting the ICC exclusive jurisdiction. 

The petitioner argues that the ICC's focus was solely on the tender offer, neglecting implications for minority shareholders due to assumptions about appraisal rights. However, the original ICC decision and merger agreement did not reference appraisal rights, and the ICC noted that the 1983 proxy statement acknowledged potential jurisdictional issues. The petitioner failed to demonstrate that subsequent Delaware court rulings altered the conditions relevant to the merger agreement or the ICC's rationale. 

While the ICC is not mandated to conduct an appraisal merely due to the absence of state court appraisal rights, it is implied that the ICC must ensure shareholders receive fair economic equivalents as per Schwabacher. There is a suggestion that the ICC should consider appraisal rights under the Interstate Commerce Act in appropriate cases. The petition for review is ultimately denied, with a note on ongoing litigation concerning potential misrepresentations about appraisal rights.